Block Inc. (NYSE: SQ) reported weak first quarter Fiscal 2022 results, which missed expectations on both the revenue and earnings front.
However, shares of the fintech platform spiked 8.4% during extended trading after reeling from the intraday losses. Due to the huge decline in bitcoin (BTC-USD) prices, which fell below $37,000, SQ stock plunged 10.5% and closed at $95.55 on May 5.
Yesterday, Bitcoin fell 3.1%, dragging down all the players who have hoarded the cryptocurrency. Year-to-date, bitcoin has lost 11.2% in value, while SQ stock has lost 41.8% during the same period.
On a positive note, Block reported a gross profit surge of 34% year-to-year to $1.29 billion, with Cash App generating $624 million and the Square ecosystem generating $661 million in gross profit.
Block also completed the acquisition of Afterpay, a global “buy now, pay later” (BNPL) digital platform on January 31. Afterpay’s results were consolidated into Block’s, the company expects the BNPL giant to meaningfully boost its performance trajectory. Since then, Block has witnessed nearly 13,000 Square merchants engage in BNPL sales, increasing the Afterpay active sellers by almost 10% in Q1.
Q1 Results in Detail
Block reported adjusted earnings of $0.18 per share, 6 cents lower than analysts’ estimates of $0.24 per share. Moreover, the figure was also much lower than the prior year’s comparative figure of $0.41 per share.
Additionally, Block’s total net revenue of $3.96 billion declined 22% year-over-year and came in much lower than the Street’s estimates of $4.19 billion. The drop in revenue was driven by a massive fall in Bitcoin prices in the quarter.
Excluding bitcoin revenue ($1.73 billion), Block’s total revenue rose 44% compared to the same period last year. Afterpay contributed $130 million toward total revenue.
SQ reported transaction-based revenue of $1.23 billion, boosted by a 31% year-over-year jump in gross payment volume (GPV) to $43.5 billion. Nonetheless, GPV fell sequentially from the Q4 figure of $46.3 billion.
Meanwhile, subscription and service-based revenue leaped 72% year-over-year to $959.56 million, including $130 million from Afterpay.
Analysts’ Take
Responding to Block’s quarterly results, Mizuho Securities analyst Dan Dolev maintained a Buy rating on the stock with a price target of $215, which implies a whopping 125% upside potential to current levels.
Dolev is excited about Cash App’s gross profit ($2.47 billion) and April trends for Square GPV (29% year-over-year growth) discussed by the company. However, he was less excited about the Afterpay contribution.
Dolev’s price target is based on 13x his 2024 estimated gross profit calculation. “SQ is best positioned to benefit from small and medium business (SMB) dislocation, in our view. Superior unit economics for its Cash App could help drive significant growth in GP. We believe that SQ’s margins are understated as it seeks to maximize its terminal value,” the analyst concluded.
The other analysts on the Street are also highly optimistic about the stock, with a Strong Buy consensus rating based on 30 Buys and four Holds. The average Block price target of $175.09 implies almost 83.24% upside potential to current levels.
Stock Investors
Notably, TipRanks’ Stock Investors tool shows that investor sentiment is currently Very Positive on Block, with 1.6% of portfolios tracked by TipRanks increasing their exposure to SQ stock over the past 30 days.
Ending Notes
Square seems to be in positive territory currently except for the Bitcoin drag. Add to that, the bullishness of the Street and retail investors, signaling that there is much to look out for in the forthcoming period.
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